richard.meerstra@borgentax.nl

On 21 Novenber 2025, The Dutch Supreme Court referred two important VAT questions about real estate transfers to the Court of Justice of the European Union (CJEU). The case centers on whether the transfer of leased apartments by a developer qualifies as a transfer of a going concern (TOGC) and if the seller’s intention matters for applying the TOGC. The Court also questioned whether the TOGC can apply to transactions that are otherwise VAT exempt, and implies that via a direct application of the EU VAT directive, the transaction in the case at hand should be VAT exempt, even if the property qualifies as 'new' for VAT purposes. This move creates significant uncertainty for both VAT and real estate transfer tax (RETT) in the Dutch market, making it crucial for taxpayers to review their positions.

Background of the case

A property developer redeveloped an office building into 77 residential apartments. Before completion, the developer reached an agreement for the sale of the property with a third party. After completion, the developer leased out the apartments exempt from VAT. Approximately three months after the start of the lease, the developer transferred the property to the buyer. The buyer continued the leases on the same terms. 

The developer did not remit VAT on the transfer of the property, as it considered that: 

1. the property should not be considered as newly developed for VAT purposes, which would result in the transaction being VAT exempt; and
2. the transfer should be qualified as a so-called ‘transfer of going concern’ (‘TOGC’), which should result in the transaction being out of scope of VAT (i.e. not a taxable event). The developer considered that the TOGC should apply since it already started the leasing business, which business was continued by the buyer.

 The Dutch tax authorities (‘NLTA’) disagreed with both positions of the developer. According to the NLTA, the redevelopment was so extensive that the property must be qualified as newly developed for VAT purposes, resulting in VAT taxed transaction. In addition, the NLTA argued that the TOGC regime is not applicable if the developer always had the intention to sell the property instead of operating it within a long-term rental business. In the view of the NLTA, the transaction therefore was not the sale of an on-going business, but merely the sale of stock. 

In 2020, the lower court agreed with the NLTA on both points. In 2022, the Court of Appeal disagreed with the conclusion of the lower court regarding the TOGC. The Court of Appeal ruled that for the TOGC, the intention of a seller (i.e. the developer) should not be relevant, and that only the object of a transaction is relevant. In this case, that object would be a leased-out apartment building, which in principle qualifies as a business activity for VAT purposes. Therefore, the Court of Appeal ruled that the TOGC regime is applicable to the transaction. As this already meant the transfer was not subject to VAT, the Court did not address whether the property should be regarded as newly developed. 

The Advocate-General to the Supreme Court supported this approach of the Court of Appeal and advised that the TOGC regime should apply for the same reason: the decisive factor is the object of the transaction, not the seller’s intention.

The Supreme Court

It was expected that on 21 November 2025, the Supreme Court would publish its ruling in which it would decide whether the intention of a seller is relevant for applying the TOGC. However, the Supreme Court surprised by finding that it is not beyond reasonable doubt whether the TOGC regime applies in the case at hand. The Supreme Court therefore decided to refer the following two questions to the CJEU:

1. Can the TOGC regime apply to transactions that, without the TOGC, would be exempt from VAT?
2. Is the seller’s intention relevant for applying the TOGC regime? In other words, can the TOGC apply if a real estate developer leases out a newly developed property only shortly before transferring it?

The second question is as expected and addresses the core issue of the debate between the taxpayer and the tax authorities, which was also examined by the Court of Appeal and discussed in the conclusion of the Advocate General. However, the first question comes as a surprise and the reasoning of the Supreme Court that resulted in this question is even more remarkable. Not only the answer to these questions, but especially the reasoning of the Supreme Court can have major implications for the Dutch real estate market.

 The Supreme Court considers the first question relevant because article 136 of the EU VAT Directive provides that a supply of goods that are used exclusively for VAT-exempt activities, without a right to deduct input VAT, is exempt from VAT. Since the apartments were leased VAT exempt, the Court reasons that, without the TOGC regime, the sale of the property would have been VAT exempt. This raises the question of whether the TOGC can apply to transactions that are fully exempt from VAT. 

The doubt that the Supreme Court has regarding the application of the TOGC on exempt transactions is somewhat understandable. The direct application of article 136 of the EU VAT Directive to this case however is groundbreaking. The Netherlands has not implemented this article for real estate transactions, as specific rules apply for real estate. This amongst others includes the rule that the sale of newly developed properties is VAT taxed for up to two years after their first use. The reasoning of the Supreme Court effectively renders this rule irrelevant for properties leased VAT exempt prior to transfer, also making it irrelevant to determine for such situations whether a redevelopment resulted in a “new” property for VAT purposes. The Supreme Court therefore implies that the Netherlands did not implement the EU VAT Directive correctly and that, since this article is sufficiently clear and mandatory, it can be invoked directly. Notably, the taxpayer did not raise this argument, the Supreme Court introduced it on its own initiative. 

Impact on Dutch real estate transactions

Where we expected the Supreme Court to resolve uncertainty last Friday, it has instead increased it. By applying Article 136 of the EU VAT Directive to Dutch real estate transactions and disregarding Dutch VAT rules that specifically govern such transactions, the real estate market now faces even greater uncertainty and potentially significant changes. The long-standing principle under Dutch VAT law, that the sale of a newly developed property is subject to VAT, is no longer so clear. To resolve this uncertainty, legislative change now seems inevitable. 

This development does not only affect VAT on real estate transactions, but also real estate transfer tax (RETT). This because under Dutch law, a RETT exemption applies if the sale of a newly developed property is subject to VAT under the provisions of the Dutch VAT Act. That the Dutch VAT Act stipulates that transactions with new properties are subject to VAT, is very clear. But what does it mean for the RETT exemption if a taxpayer (or a court by applying this ex officio!) considers a transaction VAT exempt by application of the EU VAT Directive? In our view it can still be argued that the RETT exemption remains applicable, but we would not be surprised if the NLTA take a different view. This will likely have to be settled in court.

 Uncertainty is not always a bad thing for taxpayers. The current situation allows taxpayers to adopt a defensible position that best suits their circumstances. To mitigate risks, taxpayers could consider taking out tax insurance. Alternatively, they could adopt a conservative approach and file an appeal against their own conservative position. Such appeals will likely be suspended by the tax authorities until the Supreme Court issues its final ruling, which will only come after the CJEU answers the referred questions. This matter will therefore keep the Dutch real estate market engaged for years to come.

It now remains to await the CJEU’s answers. In the meantime, it is strongly recommended to carefully review the VAT treatment of Dutch real estate transactions to avoid unforeseen risks and to identify potential opportunities.